Laws of the People's Republic of China

The Administration of State Taxation

Circular of the State Administration of Taxation on Relevant Issues Concerning the Tax Refund for Reinvestments of Foreign Investors

GuoShuiFa [2001] No.86

July 30, 2001

The State Taxation bureaus of all provinces, autonomous regions, municipalitie directly under the Central Government and municipalities separately listed on the State plan, the local taxation bureau of Shenzhen city:

The taxation bureaus of some regions recently inquired about whether the foreign party to an enterprise with foreign investment may, in accordance with Article 10 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises (hereinafter referred to as the Tax Law) and other relevant provisions, enjoy the preferential treatment of tax refund for reinvestments if it uses the increased after-tax profits obtained from tax audit on the transactions between its associated enterprises to reinvest within the territory of China. It is hereby clarified as follows in accordance with Article 10 of the Tax Law and Article 80 of the Detailed Rules for the Implementation of the Tax Law:

Where any foreign investor has, prior to the profit distribution and through transactions between its associated enterprises, actually transferred the profits out of the enterprise with foreign investment by which the profits were made, the foreign investor shall not enjoy the relevant preferential treatment on the tax refund for reinvestments in accordance with the provisions in Article 80 of the Detailed Rules for the Implementation of the Tax Law regarding "Reinvesting its share of profit directly as mentioned in Article 10 of the Tax Law refers to that profits earned by a foreign investor before being drawn from an enterprise with foreign investment shall be used directly to increase the registered capital, or to make direct capital investment in another enterprise with investment after such profits are appropriated", it shall not be counted as "reinvesting its share of profit directly" provided in Article 10 of the Tax Law or Article 80 of the Detailed Rules for the Implementation of the Tax Law no matter whether the foreign investor returns the transferred profits or by any means reinvests them within the territory of China.